Business context and reporting period
Walmart Inc. filed this Form 10-K for the fiscal year ended January 31, 2020. Although the request identifies 2019 Q4, the filing is annual; it also reports fourth-quarter results. Walmart operates Walmart U.S., Walmart International and Sam’s Club, serving more than 265 million customers weekly across approximately 11,500 locations and eCommerce sites.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $524.0 billion | $514.4 billion |
| Net sales | $519.9 billion | $510.3 billion |
| Gross profit margin | 24.1% | 24.5% |
| Operating income | $20.6 billion | $22.0 billion |
| Consolidated net income | $15.2 billion | $7.2 billion |
| Net income attributable to Walmart | $14.9 billion | $6.7 billion |
| Diluted EPS | $5.19 | $2.26 |
| Operating cash flow | $25.3 billion | $27.8 billion |
| Free cash flow | $14.6 billion | $17.4 billion |
Fiscal Q4: Revenue was $141.7 billion, consolidated net income was $4.3 billion, net income attributable to Walmart was $4.1 billion, and diluted EPS was $1.45. In Q4 FY2019, the comparable figures were $138.8 billion, $3.8 billion, $3.7 billion and $1.27, respectively.
Segments: Walmart U.S. net sales rose 2.8% to $341.0 billion, with comparable sales up 2.9%; operating income was essentially flat at $17.4 billion. Walmart International sales fell 0.6% to $120.1 billion and operating income declined to $3.4 billion from $4.9 billion. Sam’s Club sales rose 1.6% to $58.8 billion and operating income increased to $1.6 billion. U.S. eCommerce sales contributed approximately 1.7 percentage points to Walmart U.S. comparable sales.
Liquidity and capital: Cash and cash equivalents were $9.5 billion at year-end. Working capital deficit was $16.0 billion. Long-term debt, including amounts due within one year, was $49.1 billion; short-term borrowings were $0.6 billion. The company reported $15.0 billion of undrawn U.S. credit lines and approximately $2.9 billion outside the U.S. Capital expenditures were $10.7 billion. Dividends paid were $6.0 billion and share repurchases totaled $5.7 billion during FY2020.
Material changes versus the prior comparable period
- Revenue increased 1.9%, slower than FY2019’s 2.8% increase. U.S. comparable sales growth eased to 2.7% from 4.0%.
- Operating income decreased 6.3%, while gross margin contracted 40 basis points. Management cited U.S. price investments and the addition of lower-margin Flipkart sales; expense discipline partly offset these pressures.
- Net income rose sharply from FY2019, when results included a $4.8 billion pre-tax loss on the sale of most of Walmart Brazil and a $3.5 billion decline in the fair value of JD.com shares. FY2020 included a $1.9 billion JD.com fair-value gain. These items make the earnings comparison less indicative of underlying operating trends.
- Operating cash flow and free cash flow declined, reflecting the $1.0 billion Asda pension contribution, a full year of Flipkart operations, vendor-payment timing and higher capital expenditures.
- International sales were adversely affected by $4.1 billion of currency movements and the Brazil divestiture. International operating income also reflected approximately $0.4 billion of impairment charges, including the Jabong.com trade name write-off.
- Lease accounting adoption increased assets by $14.8 billion and liabilities by $15.1 billion in FY2020; prior-year balance sheets were not recast.
Outlook, commentary, risks and unusual items
- For FY2021, Walmart projected approximately $11 billion of capital expenditures, focused on remodels, customer initiatives, eCommerce, technology and supply chain, and expected approximately 250 new Walmart International stores, mainly in Mexico and China. The filing does not provide clear earnings or revenue guidance.
- The Board approved a FY2021 annual dividend of $2.16 per share, up from $2.12.
- Management said the financial impact of the then-recent coronavirus outbreak was unknown. The filing identifies possible effects on customer behavior, operations and global supply chains. Q4 results were also negatively affected by unrest in Chile that led to temporary store closures.
- Management estimated a further approximately $2.2 billion pre-tax pension settlement charge when Asda plan participants receive individual annuity contracts, expected in late FY2021 or early FY2022.
- Material risk exposures include intense retail and eCommerce competition, execution and cost risks from digital investments, currency and trade volatility, labor costs, cybersecurity and privacy, supply-chain disruption, and regulatory changes.
- Contingencies include more than 35,000 UK Asda equal-value claims and opioid-related litigation and investigations; Walmart stated it could not reasonably estimate potential losses. Separate money-transfer investigations were ongoing, with outcomes uncertain. The company paid $283 million in June 2019 to resolve FCPA investigations and remains subject to related compliance obligations. Environmental matters disclosed were assessed by management as not material individually or in aggregate.
- Ernst & Young issued unqualified opinions on the financial statements and internal controls; management also concluded internal controls were effective.
Most important facts for investors to verify
- Underlying operating earnings and margins excluding the JD.com fair-value gain, Brazil divestiture effects and restructuring impairments.
- Whether Walmart U.S. and Sam’s Club can sustain comparable-sales growth while maintaining margins amid price competition and eCommerce fulfillment costs.
- Flipkart’s contribution to growth, profitability and cash needs, and the implications of currency changes for International results.
- Cash generation after pension funding, capital expenditures, dividends and repurchases; also monitor debt, lease obligations and the working capital deficit.
- Developments in the Asda equal-value claims, opioid matters, money-transfer investigations and the expected Asda pension settlement charge.
- Subsequent disclosures on the coronavirus outbreak and any changes to investment plans or operating outlook.